UK’s Industrial Strategy returns with sector focus

The return of the UK Industrial Strategy (UKIS) the last edition of which was published by Theresa May's Government in 2017, represents a ‘statement of intent’ by the UK Government of the areas where it will seek to enable and encourage growth and an ambitious attempt to ‘draw together the threads’ that make up the UK's position as an industrial and military power; national and regional growth policies and the interventions available to the UK Government.

Published shortly after the 10 year Infrastructure Strategy, there are crossovers of funding, ambition and method. One obvious commonality is the use of a 10 year timeline (with the UKIS setting ambitious progress targets to be achieved by 2035 in sectors such as life sciences). Although the UKIS signposts the role the Industrial Strategy Advisory Council has had in the development of the strategy (and its future role monitoring the effectiveness of the UKIS), this document is a summation of current government policy (rather than a cross-party consensus). There is inherent contradiction between an electoral cycle that requires a government to periodically 're-apply' for the electorate's consent to govern and the need for industrial policy to involve long term commitments and measure progress over decades. 

The UKIS is a broad and expansive document and it is beyond the scope of this article to identify and examine each of the targets and interventions identified. But there are key themes and links between them I have sought to summarise - and consider their prospects of success.

Away from a Mission Oriented Industrial Strategy

Whether by design or by necessity (given the range of initiatives and interventions announced or referenced in the UKIS), it represents a return to a traditional ‘sector and interventions’ approach. 

It is perhaps worth mentioning that the 2017 industrial strategy represented a break from the traditional structure of industrial policy statements - informed by the work of Professor Mariana Mazzucato of UCL the 2017 strategy was structured around a series of missions (rather than sectors) based on the concept that mission driven policy design had the potential to drive more effective outcomes. 

Picking Sectors: the IS-8 

The UK’s new Industrial Strategy marks a decisive return to a sector-based model, concentrating on eight core areas – the so-called IS-8 – alongside a series of ‘frontier’ subsectors. Together these account for around a third of the UK economy, with ambitions, policy approaches and interventions outlined for each. The IS-8 spans defence, advanced manufacturing, creative industries, life sciences, clean energy, digital and technologies, financial services, and professional and business services.

In defence, the strategy aims to halve the gap between UK and US venture capital investment, overhaul procurement with a requirement that 10% of Ministry of Defence spending goes on novel technologies, and establish UK Defence Innovation backed by £400 million. 

Frontier industries with dual civil and military applications – such as advanced materials and quantum semiconductors – also feature, alongside ‘defence growth deals’ to develop regional clusters. 

Advanced manufacturing is targeted to double annual investment to £39 billion by 2035, while life sciences are set even higher goals: becoming Europe’s leading life sciences hub by 2030 and one of the top three globally by 2035. 

Clean energy investment is expected to more than double to over £30 billion by 2035, while digital and technologies are underpinned by a £3-to-£1 private-to-public R&D investment target. 

Meanwhile, financial services and professional and business services are recognised as critical enablers, with a stated ambition to double business investment in the latter by 2035.

Picking places

The UKIS is ‘unashamedly place-based’ and references the Harrington Review (on how the UK can best encourage FDI) and in particular its 3^rd recommendation (to enable a place based offering to investors) in framing its intentions around encouraging industrial growth in specific locations. For foundational sectors such as steel, chemicals and critical minerals the UKIS references the existing clusters: chemical production in Cheshire, Grangemouth the Humber and Tees Valley, critical minerals in Aberdeen, Belfast, Birmingham, Cornwall, Devon, Durham, Fort William, South Wales and the Tees Valley, and strategic steel sites: Port Talbot, Scunthorpe, Sheffield, and Tees Valley. 

Alongside its sectoral focus, the UKIS places strong emphasis on geography, aiming to build clusters in city regions with the greatest potential to support the IS-8 sectors. The West Midlands, for example, has been earmarked as a hub for advanced manufacturing, creative industries (including Createch), financial services, life sciences, and professional and business services, with the latter reinforced by plans for a dedicated West Midlands PBS Hub. Similar place-based clusters are to be developed across other regions, designed to align local strengths with national industrial priorities.

These clusters will be underpinned by a series of new funding mechanisms. A £500 million Mayoral Recyclable Growth Fund will enable mayors and local authorities to drive long-term investment through 10-year Local Growth Plans. The UKRI-managed Local Innovation Partnerships Fund (LPIF), also worth £500 million, will support high-potential clusters through joint action plans with combined authorities. In addition, a £600 million Strategic Sites Accelerator will back interventions such as land remediation, anticipatory grid capacity, transport improvements and fast-tracked planning. The first Strategic Sites are due to be announced within 12 months, raising speculation that they could include the Didcot data centre campus, where similar measures have already been proposed.

As with the 10-Year Infrastructure strategy there are a number of references to place-based infrastructure investment. One notable specific intervention referenced in the UKIS is to Defra and the 29 recommendations of the Corry Review which included reference to the need to take account of place-based dynamics in the application of environmental regulation. Reference in the UKIS to streamlining of Defra's regulatory duties "with a stronger focus on growth and investment" can be seen as a strong pointer to the Governments intentions. However it is difficult to draw clear conclusions as to whether this will in practice drive an intensification of industrial activity in specific locations.

Signposts to regulatory change to drive industrial growth

The UKIS signposts the need to reduce regulatory burdens - with a bold target of a 25% reduction in administrative costs of regulation by the end of this parliament. A number of specific measures are identified.

Regulatory change - Solutions for Energy

Significant attention is devoted to grid connections and energy costs. Building on the concept of the British Industry Supercharger it suggests adjustments to measures enacted by the last government for companies operating in energy intensive industries including a review of the Energy-Intensive Industries Compensation Scheme (including the reflect implementation of the Carbon Border Adjustment Mechanism and extension of the compensation available to energy intensive industries under the existing Network Charging Compensation (NCC) scheme from 60 to 90%); 

New measures referenced including the creation of a British Industrial Competitiveness Scheme to reduce electricity costs by exempting eligible businesses from paying the costs of, the Renewables Obligation; Feed in Tariffs and Capacity Market, which the UKIS indicates will bring GB electricity costs in line with other major economies in Europe; creation of a "Connections Accelerator" service to support connecting to the grid for ‘priority projects’, the ongoing Ofgem end-to-end review of the connections process is referenced here as the process through which new incentives and obligations on the network companies will be implemented. In sections dealing with support for foundational industries the UKIS also references the possibility of a Market Demand Guarantee mechanism to stimulate demand for domestic production of electricity network equipment, additional backing for the Office for Investment to 'unblock' issues with grid connections for strategically important investors. 

Electricity market reforms are also referenced including development of a corporate power purchase agreement market to reflect ‘international best practice’, and work to align with the EU Emissions Trading Scheme in order to enable the UK to participate in the EU's Internal Electricity Market.

All of the above are clear statements of intent to address the practical and economic challenges being experienced, the success of the UKIS is likely to be heavily influenced by the effectiveness of these measures and the ability of network operators (including NESO) to respond to the interventions.

Regulatory change: planning reform and support for the IS-8

The UKIS was issued just before the second reading of the Planning and Infrastructure Bill, and is one area where the proximity of an existing legislative process will provide an immediate test for the Government in terms of willingness to put in place measures to support interventions identified in the UKIS to support growth in the I-8 sectors. 

The UKIS references a fast-track process to move projects through planning, allowing schemes to opt in to a Nationally Significant Infrastructure Project (NSIP) designation, expansion of permitted development rights for certain infrastructure (with specific reference made to mobile networks and electricity networks). 

In the days after publication of the UKIS there has been speculation as to the interventions which may be made to the planning process through amendments to the Planning and Infrastructure Bill in its final stages, including: the potential to copy measures identified in Canada's Bill C-5 (made law as the Building Canada Act, which enables ‘national interest projects’ to be fast tracked potentially shortening the planning process from 5 years to 2 years); adjustments to be made to the Habitats Regulations; adjustments to the Call-in Direction or potential use of an abridged Parliamentary process for Development Consent Orders. 

These are areas where there is an obvious read across to the 10 year Infrastructure Strategy (and the references in that document to measures to reduce the regulatory burden and enhance the planning process). 

An expanded role for UK Public Financial Institutions 

Very significant attention is given to the role of the public sector financial institutions in the UKIS. These interventions will require further development of policy, and it will be interesting to see if (in view of changes to the UK's fiscal rules made in the last Budget) these are pointers to the use of these institutions in place of grant funding as an enabler for growth:

National Wealth Fund (NWF) 

The National Wealth Fund has evolved from its origins as the UK Infrastructure Bank, and the UKIS builds on both the 10-year Infrastructure Strategy and the Chancellor's strategic steer in identifying a broader role for NWF including, potentially, in sectors including defence, life sciences and creative industries. The NWF is also identified as having a role in a pathway for privately-led advanced nuclear technologies and supporting supply chain resilience.

British Business Bank (BBB) 

As the UK's economic development bank, the UKIS identifies measures including a £100 million expansion of BBB's Nations and Regions Investment Funds and (in the context of national security) BBB's role in the new Strategic Public Investment Forum.

UK Export Finance (UKEF)

UKIS indications the Government will legislate to increase the maximum size of UKEF's financial portfolio, and initiatives including the loan guarantee scheme for domestic suppliers selling critical minerals products to UK exporters (and how this may be expanded to cover a wider range of supply chain inputs) and in the context of professional services the potentially significant establishment of a project services guarantee to support overseas growth. 

The role of AI and Data 

The inclusion of a number of knowledge-based sectors in the IS-8 inevitably requires a strategy around AI – and the UKIS identifies an objective to make the UK an “AI maker rather than an AI taker" – the BBB is again referenced as a core component of the strategy for a sovereign AI unit in Government. 

This is also supported by measures to enable greater use of data as an economic asset, with the UKIS referencing development of a data valuation framework, and a suggestion is that commercial opportunities should be balanced with public benefits around sharing of UK public sector data. 

Positioning the UK for industrial renewal?

The UKIS is ultimately attempting to take stock of current mechanisms and levers, and identify how they may be used and supplemented by new interventions to enable economic growth. 

The UKIS is extremely significant in signposting the Government's intentions to support foundational industrial sectors (including those which have a joint role in supporting civil and defence manufacturing), reflect and build on the success of certain sectors of the UK Economy and position the UK to remain relevant in areas such as AI. 

The return to a ‘Sectors and Interventions’ approach may be a pragmatic (rather than ideological) break from mission orientated policy – and it will be interesting to see if a mission oriented approach is adopted in future government policy making.